Decisions providing clarity on Michigan’s Seller Disclosure Act (“SDA”) are few and far in between. Cases involving environmental issues are even rarer. Gholston v Sherrill is the exception. Gholston addressed the issue of whether the presence of contaminated groundwater needs to be disclosed under the SDA.
The Gholston plaintiffs purchased a home from the defendants in 2021. The home was located near a former manufacturing site that had released trichlorethylene (“TCE”) into the groundwater. TCE is a known human carcinogen. Exposure to TCE occurs primarily from drinking contaminated water or by vapor intrusion, a process where TCE vapors migrate up through soil into a structure through floor or walls.
The defendants appeared to have had some knowledge that TCE vapors had been detected in the neighborhood. There was a question of fact about how much knowledge they actually had. Defendants appeared to have known that sampling had documented TCE in the groundwater near their home. The party responsible for the release of the TCE had installed monitor wells on the defendants’ property. Testing of those wells confirmed TCE was present in the groundwater beneath defendants’ property 10-12 feet below the surface. TCE was not detected in soil around their home however indicating vapor intrusion was not a completed exposure pathway. Because defendants’ house was served by a municipal water system, ingestion of contaminated drinking water was not a completed exposure pathway either.
Michigan’s Seller Disclosure Statement contains a question asking whether the seller is aware of “any substance, material or products that may be an environmental hazard.” Defendants had checked the “no” box.
Plaintiffs did not have the property inspected before closing on the property. While moving in, a toxicologist working for the responsible party visited their house. The toxicologist explained the presence of TCE contamination in the neighborhood. He also pointed out the monitoring wells located on their property. Plaintiffs subsequently sued Defendants seeking rescission of the purchase agreement alleging fraud and violation of the SDA.
The trial court awarded summary disposition to the defendants on the basis that plaintiffs had not shown the property was contaminated and their reliance on the SDA was unreasonable. On appeal, the Court framed the issue as whether TCE contaminated groundwater was an environmental hazard that required disclosure under the SDA even though there was no evidence of vapor intrusion and the contaminated groundwater was not being used for drinking water.
The Court began its analysis by observing the SDA requires disclosure of substances that “may be” an environmental hazard as opposed to those that “are.” The term “may be” is open ended as opposed to being absolute. In noting this distinction, the Court concluded the Legislature did not condition disclosure on an existing immediate danger, but rather, a risk of potential future danger. Based on the wording of the SDA, the Court quickly rejected the notion that the soil or the house itself must be contaminated to trigger a duty to disclose.
As part of its analysis, the Court noted the term environmental hazard is not a defined term in the SDA. The Court looked at environmental statutes to determine what the Legislature meant by the term. It concluded that “an environmental hazard is an unacceptable risk to a person’s health, safety, or welfare posed by the presence of a material, or product in the soil, surface water, groundwater, air or building materials associated with the subject property.”
Applying this definition to the facts, the Court believed that there was an environmental hazard that the defendants failed to disclose. A hazard covers both the actual release and potential migration of that hazard. If there is an actual viable pathway through which a contaminant in groundwater can migrate to the soil and/or air, there is a risk to the environment.
The Court noted TCE was present in the groundwater below the subject property and there was a viable contaminant vector based on TCE’s propensity to migrate from groundwater to soil. The fact that vapor intrusion had been detected in nearby properties was evidence of an actual unacceptable risk. Because there was contaminated groundwater below defendants’ home, and a potential pathway existed for the contaminants to migrate to the soil or air of the property, it should have been disclosed under the SDA even though neither pathway was complete.